Tuesday 28 October 2008
Retec Digital PLC ("Retec" or "the Company")
Preliminary results for the year ended 30 June 2008
Retec Digital PLC, the multi-channel marketing services company and one of the
UK's leading providers of Guided Selling solutions, is pleased to announce its
preliminary results for the 12 months to 30 June 2008.
Retec Digital PLC provides multi-channel marketing solutions to retailers
designed to engage customers and increase sales. It already has systems
installed in major retail chains including Sainsbury's, WH Smith, Tesco, Boots
and Argos.
Highlights:
* Turnover up 52% to �6.21m (2007: �4.07m).
* Gross profit up 85% to �1.83m (2007: �0.99m).
* Loss before tax reduced by 60% to �0.34m (2007: �0.84m).
* Acquisition of Liquid Digital Limited on 20 May 2008 enhances our creative
capability and strengthens our relationships with WH Smith and other key
retailers.
* Agreement with NCR Corporation a significant step in extending Retec's
partnership framework.
* New customers gained during the period include ASDA, Debenhams and WH
Smith.
* In partnership with IBM UK Limited, completed the delivery of 1,340
Advantage Card kiosks to Alliance Boots and a further 1,000 Quick Pay
kiosks to Argos.
* Acquisition of ODD London Limited on 1 September 2008 (post year-end)
significantly extends Retec's product offering and range of capabilities.
Commenting on the results for the year, Sir Brian Ivory, Chairman said:
"Our first full year as a listed company has been one of significant progress,
and we enter 2008/09 with an expanded business based both on organic growth and
selective acquisitions. We have been able to increase our customer base and
capabilities despite a tough economic environment for our products and
services, and we will be seeking to consolidate these during the next financial
year.
We believe that organic growth will not be as strong during the current
financial year but that the Group will continue to grow as a whole from our
acquisitions. The Board remains confident of the future prospects of the
Company."
For further information please contact:
Retec Digital PLC 01455 222260
John Cole, Chief Executive
Charles McKay, Finance Director
Hogarth Partnership Limited 020 7357 9477
Fiona Noblet / Ian Payne
Charles Stanley Securities
Mark Taylor / Ben Johnston 020 7149 6000
Notes for Editors: Retec Digital PLC provides multi-channel marketing solutions
to retailers designed to engage customers and increase sales.
It already has systems installed in major retail chains including Sainsbury's,
WH Smith, Tesco, Boots and Argos.
Flexible and versatile, Retec's solution can incorporate a mixture of advanced
products within its range. These include:
Entertainment Xtra - a communications channel incorporating the range of the
Company's system aimed at promoting home entertainment products such as music,
films, games and books. Other customers include Sainsbury's, Tesco and WH
Smith.
Product Finder - this is used to locate any product within a store and can be
used in conjunction with other applications within the Company's portfolio.
Guided Selling - a touch screen providing audio/visual information/instruction
on products at the point of sale. This has a variety of applications including
for example, wine and electrical goods.
Self Service - allows customers to perform a transaction using an in-store
terminal. Retec's product suite has the ability to extend the range of product
sold within a store, enable self check-out, top up a mobile phone, sell mobile
phone content (games, logos etc), purchase of gift cards and interact with
loyalty schemes. Current customers include Boots, Argos and Woolworths.
CHAIRMAN'S STATEMENT
This year represents Retec Digital PLC's first full year as a listed company.
We have grown organically at a healthy rate, with turnover up by 52% and have
shown an operating profit, before the effects of intangibles and share based
payments, for the first time. Since the start of the calendar year, we have
been able to make two acquisitions which will considerably enhance our product
offering.
The economic climate has meant that trading conditions have remained tough and
we are by no means insulated from the effects of the turmoil in the financial
markets at present. However, I am delighted that our shareholders have
supported us through the fund raisings we carried out in May 2008, and again in
September 2008, allowing us to continue our growth through the acquisitions of
Liquid Digital Limited ("Liquid") and ODD London Limited ("ODD").
Results for the year ended 30 June 2008
2008 2007
Change % �'000 �'000
Turnover +52% 6,205 4,069
Gross profit +85% 1,834 991
EBITDA 1,065 124
Operating profit/(loss) before +105% 22 (424)
amortisation of intangibles and
share based payments
Loss before tax (+60)% (339) (843)
Losses per share
- Basic and fully diluted (0.22)p (0.87)p
Cash
We raised �744,000 before expenses in May 2008 and cash balances at 30 June
2008 stood at �459,000 (2007: �1,044,000).
The Company is not in a position to pay dividends at this time although it
remains the aspiration of the Directors to make dividend payments in the
future.
Operational review
Retec provides retailers with Guided Selling solutions designed to increase
core sales, provide additional revenue opportunities, and to improve cost
control and customer satisfaction.
Retec has further developed its relationships with its four principal customers
from the prior year, namely Sainsbury's, Tesco and, in partnership with IBM UK
Limited, Alliance Boots and Argos. We have also added further names to our
customer list including but not limited to: ASDA, Debenhams and WH Smith.
In June 2008 Retec announced a new partnership with NCR Corporation, a leading
global technology company, to provide self-service guided selling solutions
incorporating software from Retec and kiosks from NCR. This agreement was a
significant step for Retec and has already benefited our organic expansion.
Within Retec's offering of Entertainment Xtra to Sainsbury's, we have been able
to demonstrate continually to the customer that the returns achieved run in
excess of 20%. By any measure this is extremely encouraging and we will be
extending our presence to both Games and Books during the next financial year.
In order to increase uniformity across all our major contracts, we have changed
the basis of the business model with Sainsbury's as of 30 June 2008 to that of
a service contract whereby we are now paid for our services directly by
Sainsbury's rather than through a lease arrangement. As a consequence the
equipment leased by ourselves is no longer on our balance sheet.
Early in the year, in partnership with IBM UK Limited, we completed the
delivery of 1,340 Advantage Card kiosks to Alliance Boots and a further 1,000
Quick Pay kiosks to Argos.
We have continually sought to bring new products and services to market.
Electronics and Wine are the principal Product Selectors which we have trialled
during the year, and the Electrical Goods Comparison touch screen solution for
Debenhams was announced on 13 October 2008. These have shown similar results to
that of entertainment and we are in discussions regarding deploying these
further into our customer base.
Acquisitions
The acquisition of Liquid for a consideration of �250,000 in cash and shares,
announced on 20 May 2008, brought with it enhanced relationships with a number
of key retailers, in particular WH Smith. Liquid is a multi-media creative
business that designs and operates screen networks in the digital media market.
It maintains the large screen network for WH Smith Travel outlets, and through
this relationship we are aiming to expand our presence in this retailer. In the
year to 31 May 2007, Liquid had an unaudited turnover of �551,000 and a profit
before tax of �20,000. Its unaudited net assets at 31 May were �16,000.
The experience and expertise that the Liquid acquisition has brought to the
Group has enabled us to merge some of our creative and technical activities and
significantly enhance our capacity to deliver projects. One of our early
successes for this was the delivery of a new shirt printing order point for
Liverpool FC.
Post year-end, on 1 September 2008, we acquired ODD for a consideration of �
540,000 in cash and shares.
ODD is a design-led communications agency whose client list includes Kickers,
Kiss, New Look, Nike, Sony and Westfield. It has a multi-disciplinary offering,
which ranges from product design to fully integrated marketing campaigns. In
the year to 31 December 2007, ODD had an unaudited turnover of �2,206,000 and
profit before tax of �54,000. Its unaudited gross assets at 31 December 2007
were �667,000. The acquisition of ODD has given Retec access to its client list
and has significantly extended the Group's product offering and range of
capabilities.
Convertible loan stock
In order to underpin the growth of the business, we announced on 5 September
2008 that we had issued new convertible unsecured loan stock. This convertible
unsecured loan stock carries a coupon interest rate of 8 per cent. per annum
payable quarterly in arrears and is convertible at 2 pence per ordinary share
or (if less) the lowest price per ordinary share at which, whilst convertible
unsecured loan stock remains outstanding, the Company issues, or agrees or
commits itself, to issue ordinary shares at any time up until 31 December 2009,
at which point any issued but unexercised convertible unsecured loan Stock is
repayable by the Company. This was used to repay the existing �150,000 loan
from Meadowside and to provide more working capital for the Group.
Changes to the Articles of Association of Retec Digital PLC
In the light of the new provisions introduced by the Companies Act 2006, it is
proposed that the Company adopts new Articles of Association updated to take
into account the new law. Accordingly, it will be proposed to adopt new
Articles at the forthcoming AGM.
The list below summarises the principal new elements contained within the
proposed new Articles of Association:
* Provisions governing how the Board may authorise a Director where a
conflict of interest may exist.
* Provisions to enable general meetings of the Company to be held on 14 days
notice notwithstanding the proposing of a special resolution.
* Provisions giving the Company the ability to take advantage of the ability
to use electronic communications for the distribution of notices and
documents to members.
Current trading and outlook
We enter 2008/09 with an expanded business based both on organic growth and
selective acquisitions. We have been able to increase our customer base and
capabilities despite a tough economic environment for our products and
services, and we will be seeking to consolidate these during the next financial
year.
We believe that organic growth will not be as strong during the current
financial year but that the Group will continue to grow as a whole from our
acquisitions. The Board remains confident of the future prospects of the
Company.
Sir Brian Ivory
Chairman
28 October 2008
RETEC DIGITAL PLC
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2008
Note 2008 2007
�'000 �'000
TURNOVER - Continuing 6,167 2
- Acquisitions 38 4,067
------------- -------------
6,205 4,069
Cost of sales - Continuing (4,086) -
- Acquisitions (60) (2,820)
- Amortisation of intangibles (225) (258)
------------- -------------
(4,371) (3,078)
GROSS PROFIT 1,834 991
Administrative expenses (2,191) (1,673)
Amortisation of intangibles (94) (148)
Share based payments (36) (23)
Other income 154 -
-------------- --------------
OPERATING LOSS - Continuing 2 (327) (452)
- Acquisitions (6) (401)
-------------- --------------
(333) (853)
Net interest (payable)/ 4 & 5 (6) 10
receivable
-------------- --------------
LOSS ON ORDINARY ACTIVITES
BEFORE TAXATION (339) (843)
TAXATION 6 51 (153)
------------- -------------
LOSS FOR THE YEAR (288) (996)
======= ======
BASIC LOSS PER SHARE 7 (0.22p) (0.87p)
====== ======
All operations are continuing.
The Company has no recognised gains or losses other than the loss for the year.
RETEC DIGITAL PLC
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2008
2008 2007
Note �'000 �'000
ASSETS
Non-current assets
Intangible assets 9 3,233 2,816
Plant and equipment 10 161 1,963
Deferred Tax 6 478 524
------------ ------------
3,872 5,303
------------ ------------
Current assets
Inventories 12 152 130
Trade and other receivables 13 587 959
Current tax assets 67 50
Cash and cash equivalents 14 512 1,044
------------- -------------
1,318 2,183
------------ ------------
5,190 7,486
====== ======
EQUITY
Capital and reserves attributable
to the Company's Equity
shareholders
Called up share capital 15 1,969 1,801
Share premium account 3,854 3,230
Retained earnings (2,159) (1,907)
------------ ------------
Total equity 3,664 3,124
------------ ------------
LIABILITIES
Non-current liabilities
Borrowings 18 40 1,174
Current liabilities
Borrowings 16 303 150
Trade and other payables 17 1,183 3,038
------------ ------------
1,486 3,188
------------ ------------
Total liabilities 1,526 4,362
------------ ------------
Total equity and 5,190 7,486
liabilities
====== ======
RETEC DIGITAL PLC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 30 JUNE 2008
Share Capital Share Premium Retained Total
Earnings
�'000 �'000 �'000 �'000
Balance at 30 June 2006 1,500 1,917 (1,156) 2,261
as previously stated
Prior year adjustment - - (74) 74 -
share options
-------------- -------------- --------------- ---------------
At 1 July 2006 as 1,500 1,843 (1,082) 2,261
restated
Loss for the period - - (996) (996)
Share based payments - (148) 171 23
Share issue 301 2,002 - 2,303
Issue costs - (467) - (467)
-------------- -------------- --------------- ---------------
Balance at 30 June 2007 1,801 3,230 (1,907) 3,124
Loss for the period - - (288) (288)
Share based payments - - 36 36
Share issue 168 677 - 845
Issue costs - (53) - (53)
-------------- -------------- --------------- ---------------
Balance at 30 June 2008 1,969 3,854 (2,159) 3,664
====== ====== ====== ======
RETEC DIGITAL PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2008
2008 2007
Note �'000 �'000
Cash flows from operating activities
Loss for the period (288) (996)
Adjustments for:
Tax (credit)/charge (51) 153
Net interest payable/(receivable) 6 (10)
Depreciation and amortisation 1,398 954
Other income (154) -
Share option charge 36 23
Increase in stock (21) (32)
Decrease in trade and other 492 964
receivables
Decrease in trade and other payables (1,217) (357)
-------------- --------------
Cash inflow from operations 201 699
Tax refunded 28 9
-------------- --------------
Net cash inflow from operating 229 708
activities
-------------- ---------------
Cash flows from investing activities
Acquisition of subsidiary (gross of (192) (288)
overdraft acquired)
Purchases of property, plant and (122) (48)
equipment
Purchases of intangible assets (348) (62)
Interest received 25 15
Interest paid (31) (5)
-------------- --------------
Net cash used in investing activities (668) (388)
-------------- --------------
Cash flows from financing activities
Issue of shares (net of issue costs) 692 1,018
Proceeds from borrowings 100 -
Finance lease repayments (938) (399)
-------------- --------------
Net cash used in financing activities (146) 619
-------------- --------------
Net (decrease)/increase in cash and (585) 939
cash equivalents
Cash and cash equivalents at 1,044 105
beginning of year
-------------- --------------
Cash and cash equivalents at end of 14 459 1,044
year
======= =======
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of preparation
These financial statements have been prepared in accordance those IFRS
standards and IFRIC interpretations issued and effective as at the time of
preparing these statements. The policies set out below have been consistently
applied to all the years presented.
Consolidated accounts
The consolidated accounts of the Group incorporate the assets and liabilities
of the Company and its subsidiary undertakings (all of whose financial
statements have been made up to 30 June 2008) and the results for the period
when they were part of the Group. Results of the subsidiary companies acquired
during the year are included from the date of acquisition.
Revenue recognition
Revenue comprises the fair value of the sale of goods and services, net of
value-added tax, rebates and discounts.
Inventories
Inventories are stated at the lower of cost incurred in bringing each product
to its present location and condition and net realisable value.
Net realisable value is based on estimated selling price less any further costs
expected to be incurred to completion and disposal.
Segmental reporting
Segmental information is not presented within these financial statements as the
Directors consider the Group to be operating in one sector and in the United
Kingdom only.
Deferred taxation
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. The deferred tax is
not accounted for if it arises from initial recognition of an asset or
liability in a transaction, other than a business combination, that at the time
of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax is determined using tax rates ( and laws) that have been enacted
or substantially enacted by the balance sheet date and are expected to apply
when the related deferred tax asset is realised or the deferred tax liability
is settled.
Deferred tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
Deferred tax is measured at the tax rates which apply at the balance sheet
date.
Depreciation
Depreciation is provided on all tangible fixed assets at rates calculated to
write off the cost or valuation, less estimated residual value, of each asset
evenly over its expected useful life, as follows:
Leasehold improvements - over the lease term
Furniture and office equipment - over 2 to 3 years
Kiosks - over 3 years
Computer equipment - over 2 to 3 years
Motor vehicles - over 3 years
Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred on
development projects (relating to the design and testing of new or improved
products) are recognised as intangible assets when it is probable that the
project will be a success, considering its commercial and technological
feasibility, and costs can be measured reliably. Other development expenditures
are recognised as an expense as incurred. Development costs previously
recognised as an expense are not recognised as an asset in a subsequent period.
Development costs that have a finite useful life and that have been capitalised
are amortised from the commencement of the commercial production of the product
on a straight line basis over a period of 24 months.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with
banks and short-term deposits with an original maturity of three months or
less.
Operating leases
Rentals applicable to operating leases where substantially all of the benefits
and risks of ownership remain with the lessor are charged to profit and loss
account as incurred.
Current tax
Current tax assets and liabilities are measured at the amount expected to be
recovered from, or paid to, the taxation authorities, based on tax rates and
laws that are enacted or substantively enacted by the balance sheet date.
Employee share options
The Company awards senior employees bonuses in the form of share options, from
time to time, on a discretionary basis. The options are normally subject to
vesting conditions and, where it is considered likely that the conditions will
be met, their fair value is recognised as an employee benefits expense with a
corresponding increase in other reserve equity over the vesting period. The
proceeds received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when the options
are exercised.
Leasing and hire purchase commitments
Assets held under finance leases and hire purchase contracts are capitalised in
the balance sheet and are depreciated over their useful lives.
The corresponding lease or hire purchase obligation is capitalised in the
balance sheet as a liability.
The interest element of the rental obligations is charged to the profit and
loss account over the period of the lease and represents a constant proportion
of the balance of capital repayments outstanding.
Rentals paid under operating leases are charged to the income statement on a
straight line basis over the lease term.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination, such as
professional fees paid to accountants, legal advisers, valuers and other
consultants to effect the combination. General administrative costs and other
costs that cannot be directly attributed to the particular combination being
accounted for are not included in the cost of the combination and are
recognised as an expense when incurred.
The acquiree's identifitable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS3 `Business Combinations'
are recognised at their fair values at the acquisition dates.
Goodwill arising on acquisition is recognised as an asset and initially
measured at cost, being the excess of the costs of the business combination
over the Group's interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities. Any Goodwill arising is reviewed
annually for impairment and if such an impairment has occurred then this is
recognised immediately in the year that it occurs.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and
accumulated impairment losses. An intangible asset acquired as part of a
business combination is recognised outside goodwill if the asset is separable
or arises from contractual or other legal rights and its fair value can be
reliably measured.
The significant intangible assets acquired as part of the acquisitions of Retec
Interface Limited, Media 4 (UK) Limited and Liquid Digital Limited are the
brand of "Retec", the customer contracts and relationships, and technology
related assets for software and databases. These assets are amortised over
their useful economic lives. Amortisation is recognised in cost of sales and
overheads in the income statement.
The carrying value of intangible assets is reviewed for impairment whenever
events or changes in circumstance indicate that the carrying value may not be
recoverable.
2. OPERATING LOSS 2008 2007
This is stated after charging: �'000 �'000
Depreciation of tangible fixed 1,079 548
assets
Amortisation of intangibles arising from business 319 406
combinations
Operating lease rentals 118 72
Employee share option charge 36 23
Auditors' remuneration
- audit fees 16 16
- auditing of accounts of associates of the company
pursuant to
legislation 7 3
- other services pursuant to legislation 7 7
- other services relating to 6 5
taxation
- services relating to corporate finance 15 -
transactions
====== ======
The Audit Committee review and monitor the auditors' independence and
objectivity and the effectiveness of the audit process.
3. EMPLOYEE BENEFIT EXPENSE (including 2008 2007
directors)
�'000 �'000
Wages, salaries, pensions, fees and 1,972 1,290
profit share
Social security costs 214 126
Share options 36 23
------------- -------------
2,222 1,439
====== ======
The average number of persons (including
Directors)
employed by the group during the year Number Number
was as follows:
Sales and marketing 7 6
Operations 28 24
Office and administration 13 12
------------- -------------
48 42
====== ======
Directors' compensation �'000 �'000
Salaries and short-term employee 347 277
benefits
Share options 18 11
----------- --------------
365 288
===== =====
4. BANK INTEREST RECEIVABLE AND SIMILAR INCOME 2008 2007
�'000 �'000
Bank interest 25 15
====== ======
5. INTEREST PAYABLE AND SIMILAR CHARGES 2008 2007
�'000 �'000
Bank interest 7 -
Finance charge on finance leases and hire 6 -
purchase contracts
Interest payable on loans 18 5
------------- -------------
31 5
====== ======
6. TAXATION 2008 2007
�'000 �'000
(a) The taxation (credit)/ charge
comprises:
Corporation tax credit (46) (22)
Adjustment in prior year 5 -
------------ -------------
Current tax (41) (22)
Deferred tax (10) 175
------------ -------------
(51) 153
======= =======
(b) The tax assessed in the year is different from the standard rate of
corporation tax in the UK of 28% (2007: 30%). The differences are explained
below: -
2008 2007
�'000 �'000
Loss on ordinary activities before tax (339) (843)
====== ======
Loss on ordinary activities before tax
multiplied by the
standard companies' rate of tax in the UK of (95) (254)
28% (2007:30%)
Effects of:
Depreciation more than capital allowances - 8
Expenditure not deductible for tax 35 128
purposes
Development expenditure (35) (27)
Effect of lower rate on research and 35 -
development tax credit
Share option charge 10 6
Losses carried forward 10 117
Utilisation of tax losses (6) -
Adjustments to prior periods 5 -
------------ -----------
Current tax (41) (22)
====== ======
(c) Factors which may affect future
tax charges
Retec Digital PLC has group tax equivalent losses of �1,683,000 (2007: �
1,663,000), which may be utilised against future tax liabilities.
(d) Deferred tax
The deferred tax included in the balance sheet is as follows:
Deferred tax asset
Losses carried forward 805 699
Deferred tax on fair value (221) (175)
adjustments
Deferred tax on development (106) -
expenditure
------------- -------------
478 524
====== ======
The deferred tax asset is recognised as the Group's projections show that
Retec Digital PLC will generate sufficient taxable profit over the next few
years to utilise the tax losses available.
7. LOSS PER SHARE
Basic loss per share is calculated by reference to the loss on ordinary
activities after taxation of �288,000 (2007: �996,000).
IAS 33 requires presentation of diluted EPS when a company could be called
upon to issue shares that would decrease net profit or increase net loss
per share. For a loss making company with outstanding share options, net
loss per share would only be increased by the exercise of out-of-the-money
options. Since it is inappropriate to assume that option holders would act
irrationally, no adjustment is made to diluted EPS for out-of-the-money
share options.
2008 2007
Number Number
Basic weighted average number of shares 130,053,291 114,824,974
Basic loss per share (0.22)p (0.87)p
Diluted loss per share (0.22)p (0.87)p
8. LOSS ATTRIBUTABLE TO RETEC DIGITAL PLC
The loss for the financial year dealt with in the financial statements of the
parent company, Retec Digital PLC, was �4,000 (2007: �435,000). As permitted by
s230 of the Companies Act 1985, no separate profit and loss account is
presented in respect of the parent Company.
9. INTANGIBLE ASSETS Potential
Development Order book Intellectual Goodwill Total
costs Property
�'000 �'000 �'000 �'000 �'000
Cost
At 1 July 2006 - - - - -
Acquisition of - 757 522 1,881 3,160
subsidiaries
Additions 62 - - - 62
------------- ------------- ------------- ---------------- -------------
At 1 July 2007 62 757 522 1,881 3,222
Acquisition of - 102 98 188 388
subsidiaries
Additions 348 - - - 348
------------- ------------- ------------- ---------------- -------------
At 30 June 2008 410 859 620 2,069 3,958
====== ====== ====== ======= ======
Amortisation and
impairment
At 1 July 2006 - - - - -
Amortisation during - (258) (148) - (406)
the year
------------- ------------- ------------- ------------ -------------
At 1 July 2007 - (258) (148) - (406)
Amortisation during (31) (195) (93) - (319)
the year
------------- ------------- ------------- ------------ -------------
At 30 June 2008 (31) (453) (241) - (725)
====== ====== ====== ====== ======
Net book value at 30 379 406 379 2,069 3,233
June 2008
====== ====== ====== ====== ======
Net book value at 30 62 499 374 1,881 2,816
June 2007
====== ====== ====== ====== ======
All amortisation charges in the year have been charged through costs of sales
and overheads.
Development expenditure capitalised relates to the development of new Guided
Selling solutions used by the business. This will be amortised over the useful
life of contracts that then use this development and in any event no longer
than 36 months.
The potential order book relates to customer relationships and contracts in
place at the date of the acquisition of Retec Interface Limited, Media 4 (UK)
Limited and Liquid Digital Limited. In the case of the potential order books,
these are written off in a year given the short term nature of the orders in
hand. Customer contracts are being amortised over the length of those contracts
which is typically three years.
Intellectual property relates to brands, software and database assets held by
Retec Interface Limited and Liquid Digital Limited. These are continually
refreshed by the business as needs change and requirements from customers are
added to. The database is short term in nature and has been fully amortised in
the year to 30 June 2008. Software is being amortised over a period of up to
ten years.
Goodwill has been allocated to the Retec Interface Limited, Media 4 (UK)
Limited and Liquid Digital Limited cash generating units for impairment testing
purposes. The recoverable amount has been determined based on a value in use
calculation using risk-adjusted cash flow projections based on financial
budgets prepared by the Group. The key assumptions used in the value in use
calculation are:
Discount rates
The discount rate applied to the cash flow projections is 20.32% for Retec
Interface Limited, 23.67% for Media 4 (UK) Limited and 25.81% for Liquid
Digital Limited. This is the Group's weighted average cost of capital adjusted
to reflect a market assessment of specific risks associated with the segment
cash flows.
Period over which projected cash flows are based on approved financial budgets
The period over which cash flows are projected based on financial budgets
approved by the Board is one year.
Growth rate used to extrapolate cash flows beyond the budget period
The growth rate used to extrapolate cash flow projections beyond the budget
period is 2.00%.
Component elements of Goodwill
For the purposes of the adoption of IFRS3, the separately identifiable elements
of goodwill comprise the assembled workforce of Retec Interface Limited, Media
4 (UK) Limited and Liquid Digital Limited.
The assembled workforces combined have been ascribed a value of �454,000 being
the cost to recreate the same workforce and make them as productive as the
current employees of the Group. At the date of these accounts there has been no
impairment of this workforce.
The deferred tax asset of �805,000 (note 6) takes into account the projected
trading of the Group over the next five years and then discounts the
utilisation of losses over that period in determining the value of the deferred
tax asset that is to be recognised in the accounts.
Sensitivity
Management believe that it is unlikely that any reasonable possible change in
the key assumptions would cause the carrying value of any of the cash
generating units to exceed its recoverable amount.
10. PROPERTY, PLANT AND EQUIPMENT
Furniture,
office
Leasehold and computer Motor
Improvements equipment Vehicles Kiosks Total
�'000 �'000 �'000 �'000 �'000
Cost
At 1 July 2006 - - - - -
On acquisition 12 146 111 1,187 1,456
Additions - 48 34 1,254 1,336
Disposals (4) - - - (4)
---------------- ---------------- --------------- ---------------- ----------------
At 1 July 2007 8 194 145 2,441 2,788
On acquisition - 23 - - 23
Additions 40 41 35 549 665
Disposals - - (32) (2,990) (3,022)
---------------- ---------------- --------------- ---------------- ----------------
At 30 June 2008 48 258 148 - 454
---------------- ---------------- --------------- ---------------- ----------------
Depreciation
At 1 July 2006 - - - - -
On acquisition 5 118 41 117 281
Charge for the year 2 14 24 508 548
Disposals (4) - - - (4)
---------------- ---------------- --------------- ---------------- ----------------
At 1 July 2007 3 132 65 625 825
On acquisition - 15 - - 15
Charge for the year 5 52 47 975 1,079
Disposals - - (26) (1,600) (1,626)
---------------- ---------------- --------------- -------------- -----------------
At 30 June 2008 8 199 86 - 293
---------------- ---------------- --------------- -------------- -----------------
Net Book Value
At 30 June 2008 40 59 62 - 161
======= ======= ======= ======== ========
At 30 June 2007 5 62 80 1,816 1,963
======= ======= ======= ======== ========
Included in the totals for fixed assets are the following assets held under
finance leases and hire purchase contracts:
Motor vehicles Kiosks
2008 2007 2008 2007
�'000 �'000 �'000 �'000
Net book value 57 78 - 1,816
======== ======== ========= ========
11. BUSINESS COMBINATIONS
continued
a) In May 2008, the Company acquired 100% of the Ordinary share capital of Liquid
Digital Limited, for a total consideration of �293,000, satisfied by the issue
of 3,809,523 Ordinary Shares, �150,000 in cash, and costs of �43,000.
Analysis of the acquisition of Liquid Digital Limited:
Net assets at date
of acquisition
Book Fair value Fair value to
adjustments Group
value
�'000 �'000 �'000
Intangible assets - 200 200
Property, plant and 8 - 8
equipment
Receivables 57 - 57
Cash at bank (6) - (6)
Liabilities (98) - (98)
Deferred tax - (56) (56)
liability
--------------- --------------- ---------------
Net assets on (39) 144 105
acquisition
======= =======
Goodwill arising on 188
acquisition
---------------
293
=======
Discharged by:
Cash 150
Issue of shares 100
Deal costs 43
---------------
293
=======
b. In the year Liquid Digital Limited contributed a loss of �6,000 to the
Group.
Included in the �188,000 of goodwill recognised above are certain intangible
assets that cannot be individually separated and reliably measured at the date
of acquisition as they relate to the future trading performance of the business
which is dependent on a large number of factors.
�200,000 of intangible assets was separated from goodwill as part of this
business combination and relate to the order book, customer contracts and
relationships and software assets. The fair value of these intangibles were
calculated by calculating the net present value of future cash flows using a
discount rate of 25.81%.
12. INVENTORIES 2008 2007
�'000 �'000
Goods for resale 152 130
======= =======
13. TRADE AND OTHER Group
RECEIVABLES
2008 2007
�'000 �'000
Trade receivables 420 446
Other debtors 32 53
Prepayments and accrued 135 460
income
--------------- ---------------
587 959
======= =======
Concentrations of credit risk with respect to trade receivables are limited
because the Group's customer base is large and unrelated. Due to this,
management believe there is no further credit risk provision required in excess
of normal provision for doubtful receivables.
14. CASH AND CASH EQUIVALENTS 2008 2007
�'000 �'000
Cash at bank 215 778
Short-term bank deposits 297 266
------------ -------------
512 1,044
Bank overdrafts (53) -
------------ -------------
459 1,044
==== =====
15. CALLED UP SHARE CAPITAL 2008 2007
� �
Authorised:
400,000,000 Ordinary Shares of 0.5p 2,000,000 2,000,000
each
100,000 Deferred Shares of 1p each 1,000 1,000
90,000,000,000 Deferred "B" Shares of 4,500,000 4,500,000
0.005p each
---------------------- ----------------------
6,501,000 6,501,000
========== ==========
Issued:
159,324,664 (2007:125,709,141) 796,623 628,548
Ordinary Shares of 0.5p each
36,250 Deferred Shares of 1p each 363 363
23,440,062,357 Deferred "B" Shares of 1,172,003 1,172,003
0.005p each
-------------------- --------------------
1,968,989 1,800,914
========== ==========
During the year 33,615,523 Ordinary Shares of 0.5p each were issued as follows,
giving the Company total issued Ordinary Shares of 159,324,664:
�
Allotted for cash at 2.5p each 29,666,000 Ordinary 148,330
Shares
Exercise of Warrants 140,000 Ordinary Shares 700
Share Issue on Liquid Digital Limited acquisition 19,048
3,809,523 Ordinary Shares
--------------------
168,078
=========
Share options are granted to Directors and employees. Options are generally
conditional on the employee completing a specific length of service (the
vesting period). The majority of options are exercisable from the end of the
vesting period and lapse after ten years after the grant date. The Group has no
legal or constructive obligation to repurchase or settle the options in cash.
The majority of options are valued using the Black-Scholes option pricing model
and no performance conditions were included in the fair value calculations. The
risk free rate was 5%. The expected volatility is based on historical
volatility over the last four years from the date of grant and is estimated to
be 75%.
At 30 June 2008, the Company had the following warrants in issue:
At 1 July 2007 Exercised/lapsed At 30 June 2008 Exercise Last exercise
price date
(pence)
129,630 (129,630) - 900p 28/09/07
2,000,000 - 2,000,000 10p 31/03/10
2,320,000 (140,000) 2,180,000 2p 30/09/10
-------------------- ------------------ --------------------
4,449,630 (269,630) 4,180,000
========== ======== =========
At 30 June 2008, the Company had the following share options in issue:
1,381,858 - 1,381,858 5p 31/12/11
60,000 - 60,000 125p 18/06/12
7,153,350 - 7,153,350 2p 13/10/10
2,850,000 - 2,850,000 3.75p 14/09/11
5,772,664 - 5,772,664 3.75p 29/09/11
1,112,500 - 1,112,500 4p 1/03/12
----------------------- ------------ -----------------------
18,330,372 - 18,330,372
========== ===== ==========
16. FINANCIAL LIABILITIES 2008 2007
�'000 �'000
Commercial loan 250 150
Bank overdraft 53 -
------------- ------------
303 150
====== ======
On acquisition of Liquid Digital Limited, the Company issued a commercial
loan of �100,000 due to a previous shareholder of Liquid, which is
repayable on 31 December 2008.The loan carries an interest rate of 8%.
The commercial loan of �150,000 is due to Meadowside Leasing Limited and
is repayable on 20 September 2008. The loan carries an interest rate of 3%
above LIBOR. Subsequent to the year end the loan to Meadowside was repaid
by the issue of a new Convertible Unsecured Loan Stock repayable on 31
December 2009. This loan carries interest at 8%.
17. TRADE AND OTHER PAYABLES: 2008 2007
Amounts falling due within �'000 �'000
one year
Trade payables 463 555
Social security and other 411 237
taxes
Other payables 11 9
Accruals 266 1,401
Finance leases 32 836
----------------- -----------------
1,183 3,038
======== ======
18. BORROWINGS 2008 2007
�'000 �'000
Finance leases (see note 20) 40 1,174
====== ======
19. OPERATING LEASE COMMITMENTS
The Group leases five offices under non-cancellable operating lease
agreements. The leases have varying terms, escalation clauses and renewal
rights. The lease expenditure charged to the income statement during the
year is disclosed in note 2.
The future aggregate minimum lease payments under non-cancellable
operating leases are as follows:
2008 2007
�'000 �'000
No later than one year 15 90
Later than one year and no later than 336 83
five years
----------- -----------
351 173
===== =====
20. OBLIGATIONS UNDER FINANCE Minimum lease payments Obligations under finance
LEASES leases
2008 2007 2008 2007
�'000 �'000 �'000 �'000
Amounts due:
Within one year 36 1,011 32 836
Between one and two years 30 974 22 836
Between two and three 13 283 18 338
years
Less: future finance (7) (258) - -
charges
------------ ------------ ------------ ------------
72 2,010 72 2,010
====== ====== ====== ======
21. FINANCIAL INSTRUMENTS
There are no significant concentrations of credit risk within the Group.
The maximum credit risk exposure relating to financial assets is
represented by the carrying value of receivables as at the balance sheet
date.
The Group's financial risk management policies are designed to reduce the risk
of funding, liquidity and interest risk exposure.
The Group's financial instruments comprise commercial loans, cash at bank and
other items including trade receivables and trade payables that arise directly
from its operations. The Group does not engage in instruments of a speculative
nature. There were no derivatives or hedging instruments in place during the
current or previous year. An analysis of cash and cash equivalents is given in
note 14 and of financial liabilities in note 16.
The Group finances itself through retained earnings, commercial loans,
overdraft facilities and finance and operating leases. The Group manages its
liquid resources so as to obtain the best available rates of return on cash
investments, whilst retaining access to those resources.
22. CONTINGENT LIABILITIES AND OTHER LIABILITIES
The Group has no contingent or other liabilities, other than those already
disclosed in the financial statements at the year end.
23. POST BALANCE SHEET EVENTS
On 1 September 2008, the Company acquired the entire issued share capital of
ODD London Limited.
ODD is a design-led communications agency whose client list includes Kickers,
Kiss, New Look, Nike, Sony and Westfield. It has a multi-disciplinary offering,
which ranges from product design to fully integrated marketing campaigns. In
the year to 31 December 2007, ODD had an unaudited turnover of �2,206,000 and
profit before tax of �54,000. Its unaudited gross assets at 31 December 2007
were �667,000.
On 5 September 2008, the Company created a new Convertible Unsecured Loan Stock
("CULS") for a nominal value of �650,000. �450,000 was subscribed for by
Meadowside Leasing Limited as repayment of their commercial loan of �150,000
and by way of �300,000 in cash.
The CULS has an interest rate of 8% and is repayable on 31 December 2009. The
CULS can be converted at the option of the holder, into Ordinary Shares of the
Company at an exercise price of 2p or (if less) the lowest price at which,
whilst CULS remains outstanding, the Company issues, or agrees or commits
itself, to issue Ordinary Shares at any time up until 31 December 2009.
Any Ordinary Shares held as a result of a conversion will rank pari passu with
the existing Ordinary Shares.
24. RELATED PARTY TRANSACTIONS
During the year, the Group purchased services amounting to �192,000 (2007: �
49,000) from Benchmark Limited, of which the son of Mr J Cole is a director and
shareholder. At the year end, an amount of �Nil (2007: �3,000) was owing to the
company.
During the year the Group was charged �18,000 (2007: �15,000) by The Waybury
Partnership, of which Mr B Ellis is a partner, for the services of Mr B Ellis.
At the year end, an amount of �2,000 (2007: �3,000) was owing to the
partnership. This amount has been included in trade creditors.
The Company was charged �18,000 by RH & Associates, of which R Hayim is a
partner, for the services of R Hayim (2007: �18,000). Included within trade
creditors is �Nil owed to RH & Associates (2007: � Nil).
During the year the Group was charged �18,000 (2007: �14,000) by Enitar
Limited, a company of which Sir Brian Ivory is a director, for the services of
Sir Brian Ivory. At the year end, an amount of �6,000 (2007: �Nil) was owing to
Enitar Limited. This amount has been included in trade creditors.
END
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